Contrary to popular belief, trust funds are not just for the wealthy and are an important part of estate planning. The lawyers at Peck Ritchey, LLC explain that trusts not only help minimize estate taxes but also allow loved ones to avoid the probate process. Living trusts, a trust set up by a lawyer when a person is alive, allow you to avoid probate because the assets and property placed “in trust” and managed by a trustee are already distributed to the trust. Probate occurs when a person dies with assets in their name only. For example, wills are used in probate.

According to lawyer Bonnie Kraham, trusts may have started as a tool of the wealthy but now are recommended for everyone to avoid probate. The American Association of Retired Persons (AARP) studied probate in 1991 and recommended that families use trusts rather than wills to avoid probate. Kraham argues that the “AARP study on probate started what is referred to as the ‘living trust revolution,’ when middle-class people started using trusts.”

What is the difference between a will and a trust? Compared to wills, trusts not only help avoid the probate process but also allow your trustee to distribute assets more quickly to your beneficiaries. Thus, you save time and money and avoid issues like family contention of the will. Trusts are also preferable to wills if you want to leave money to minors without court interference or if you want to wait for the beneficiary to receive the money outright at an older age. With money in a trust, health, education, maintenance and support expenses can be paid for, while a will or another method requires a judge to appoint a guardian paid with your money to protect the beneficiary’s inheritance. The beneficiary will also receive the inheritance at 18.

Furthermore, a trust, unlike the probate process, is a private document, meaning the public does not know about your estate and your beneficiaries’ inheritance. During probate, anyone may review your probate documents and estate information.

Real estate, bank accounts, investments and other assets can be used to fund your trust, and the process only requires some simple paperwork. Some assets, like an IRA, cannot fund a trust, but these assets outside of the trust can also avoid probate with the help of your elder law estate planning lawyer.

If you cannot afford long-term care insurance, you may choose an irrevocable Medicaid Asset Protection Trust (MAPT) to protect your assets after five years from nursing home costs. MAPT has a five-year look-back period, meaning all the assets in the trust are protected if you need nursing home care after five years. If you need care before five years, you will only pay the remaining time.

Trusts are no longer just for the wealthy to avoid estate taxes; instead, they can be used to save time, money, complications; keep your affairs private; protect your assets from going to nursing home costs; and give you more control over how you leave your assets to your beneficiaries.